Average 30-year mortgage rate drops to lowest level in 15 months

The average rate on a 30-year mortgage eased this week to the lowest level in 15 months, providing slight relief for U.S. home shoppers navigating a brutal housing market.

The rate fell to 6.46% from 6.49% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 7.23%.

The average rate is now the lowest it's been since mid-May last year, when it was 6.39%.

Borrowing costs on 15-year fixed-rate mortgages also fell this week, good news for homeowners seeking to refinance their home loan at a lower rate. The average rate fell to 5.62% from 5.66% last week. A year ago, it averaged 6.55%, Freddie Mac said.

Mortgage rates are expected to continue trending lower overall this year, as signs of waning inflation and a cooling job market have raised expectations that the Federal Reserve will cut its benchmark interest rate next month for the first time in four years.

"Although mortgage rates have stayed relatively flat over the past couple of weeks, softer incoming economic data suggest rates will gently slope downward through the end of the year," said Sam Khater, Freddie Mac's chief economist.

The U.S. housing market has been in a deep sales slump dating back to 2022, when mortgage rates began to climb from pandemic-era lows. Existing home sales sank to a nearly 30-year low last year as the average rate on a 30-year mortgage surged to a 23-year high of 7.79%, according to mortgage buyer Freddie Mac.

The average rate on a 30-year mortgage has mostly hovered around 7% this year — more than double what it was just three years ago. But this month, the average rate has made its biggest downshift in more than a year, sliding to around 6.5%. The pullback has sparked a pickup in applications for home refinancing loans, while applications for home purchase loans have lagged.

"We expect rates likely will need to decline another percentage point to generate buyer demand," Khater said.

Rise in home sales

On the bright side, sales of previously occupied U.S. homes ended a four-month slide in July as easing mortgage rates and a pickup in properties on the market encouraged home shoppers, many of whom have been priced out of the market given the double whammy of high borrowing costs and home prices that reached a record in June.  

Existing home sales rose 1.3% last month from June to a seasonally adjusted annual rate of 3.95 million, the National Association of Realtors said Thursday. 

Experts, however, note that a slight increase in sales does not a recovery make. "Despite the modest gain, home sales are still sluggish," said Lawrence Yun, the NAR's chief economist. 

To be sure, homeownership remains out of reach for many Americans, after years of skyrocketing home prices.  The median U.S. home sales price has surged 51% over the past five years. Home prices last month increased on an annual basis for the 13th consecutive month. 

The national median sales price rose 4.2% from a year earlier to $422,600. While down slightly from the all-time high set in June, last month's median sales price was the highest on record for the month of July.

Home sales may continue to pick up in coming months if mortgage rates follow their downward trajectory, many economists expect.

"The fate of the housing market in the coming months will be dictated in part by the direction of mortgage rates, as well as the health of the broader economy," Mark Hamrick, senior economic analyst at Bankrate, said in a recent article. "The market could benefit from a combination of tailwinds, if they were to develop and are sustained."